Arsenal upgrade

 

Source: The Statesman

 

 

Keeping the armed services “state-of-the-art”is a continuous process, and the approvals just accorded to the acquisition of equipment worth some Rs.82,000 crore have to be seen in the context of the finalisation of the Rafale deal with France, and the arrangement with Russia for a sophisticated “missile-shield”, frigates and helicopters. A feature of the latest approvals is that they pertain to indigenously produced equipment, albeit some with foreign assistance. That establishes that “make in India” is not an empty slogan for the forces, and the craze for imported “toys” has not been allowed to run amuck. Keeping the domestic industry in business is of much relevance to the self-reliance effort; alas the involvement of the private sector in defence production is still in its infancy. A welcome feature of the deals for more tanks, UAVs and rocket launchers is that the purchases have been “cleared” before severe shortages were felt, a significant change from the past, although the military “wish-list” continues to remain long. It is also important to note that among the approvals is the purchase of close to 100 units of the advanced version of the Tejas LCA - that should set at rest lingering doubts about whether the Bangalore-built fighter would eventually take its place on the IAF’s “front line”: only when “numbers” are produced can efforts at fine-tuning pay desired dividends. An additional 400 Avadi-built T-90 tanks and an array of UAVs would also boost the security effort.

 

Unfortunately, approvals of the Defence Acquisition Council are a mere first step: there is still a lot of red tape to be unraveled, then the production units have to be geared up to ensure supply at the requisite level. In the past the forces have had to look to foreign sources only because the sarkari manufacturers failed to maintain time and cost schedules. Greater involvement of the private sector would inject both competition and efficiency into the production exercise. That might be attained if, at its next round, the Council focuses on equipment produced in the private sector - which remains commercial in outlook, orders are its life-blood.

Is there a political signal to the approvals? In the context of tension on the western border, the commitment to “keep the powder dry” would be appreciated by the military: a building of “war reserves” cannot be under-estimated, remember that after the restricted “action” at Kargil the stocks of ammunition, etc., were gravely depleted. The acquisitions, however, will be fully appreciated by the “uniforms” only when they perceive sincere efforts to resolve their grievances with the Pay Commission award, status, disability pensions and the burning OROP issue: - the booming of “new” guns will not silence those woes.

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GST reform: Focus now on the payoffs

 

Source: By Renu Kohli: Mint

 

A single goods and services tax, or GST, is now on course for introduction from the next fiscal year. Various aspects of this reform, chiefly its final form—a multiple-rate structure, altogether four slabs plus a cess, an exempted class and another rate for gold—have attracted a lot of comment and criticism. Several have argued these distortions will lower expected additions to growth, estimated in the 1.5-2 percentage point region, by reducing the extent of improvements to efficiency and productivity.

Acknowledging the political economy considerations underlying these added complexities, most still expect payoffs from this structural reform. Simplification, to start with, is the biggest gain: a single tax on goods and services will now apply nationally, instead of a multitude of different taxes, tariffs and rates across the centre and the states. Better compliance and base-widening from an input-credit based consumption tax is another. And less costly, time-consuming and hassle-free inter-state transportation of goods is another benefit.

Altogether the hope is that indirect revenues will increase. Given that inflation fears have also governed the selection of multiple tax rates, the likelihood of price increases from this structural shift is nearly zero. The economy as a whole will operate more efficiently. In the process, businesses and associated services will presumably undergo some restructuring, reallocating resources and creating new opportunities as result. Newer business avenues may separately arise too.

The focus ahead therefore has to be on the growth and productivity impact of the GST reform. Being a structural reform, growth and productivity effects of GST will be observed only in the medium- to long-term. Two issues merit noting nonetheless. The first is from past experience with taxation reforms, i.e. replacement of the sales tax system by the value-added tax (VAT), bringing the untaxed services sector into the tax fold and changes in tax administration, organization and enforcement-monitoring practices to raise compliance and reduce evasions. Net combined gains from these past reforms haven’t been too substantial as the tax to gross domestic product (GDP) ratio or the additional increase in revenues in relation to nominal GDP is just about 2 percentage points higher on average in the post-2000 period compared to the preceding decade. India’s structural revenue-expenditure gap persists and weighs on public balances and the country lags behind its emerging market peers in this regard.

Gains from past structural reforms in taxation have been quite low. Perhaps, these could have been bettered, and can be done now if only past experiences illuminate the present. This also brings in the second point when considering growth payoffs from structural reforms. Over the medium- to long-term, functional improvements are a potential source of productivity enhancement for surely there is little doubt the Indian taxation system needs an overhaul. In addition, the state of the economy matters as well when reckoning the productivity-growth payoffs from structural reforms according to the International Monetary Fund’s recent appraisal. For example, infrastructure investments support growth both in the short- and long-run; other reforms might be more state-dependent. Then, demand support is critical for the success of some structural reform efforts; brightening economic prospects boost growth effects and can also offset short-term costs.

So while the long-term benefits of the GST aren’t in doubt, it remains to be seen if this reform is likely to boost growth even in the short-run or could even be a drag on that. The Indian business cycle is commonly held to be operating below trend at the current juncture, but is expected to strengthen steadily ahead.

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Undermining rule of law

 

Source: By Valson Thampu: Deccan Herald

 

Political leaders who sought to show, or show case, if you like, solidarity with the family members of the army veteran who took his life in desperation at being short-changed in respect of one-rank-one-pension (OROP), were detained on the excuse that they were endangering the rule of law. The BJP spokespersons have, since then, kept up the chorus that no one will be allowed to take liberties with the rule of law.

So what is law and, by implication, the rule of law? The prevailing assumption seems to be that whatever is convenient to the powers that be is the rule of law. The rule of law, in other words, is the assertion of the will of the ruler over citizens. But this is not rule of law. This is what used to be known as totalitarianism, the ultimate in misrule and tyranny. Now a word about law the creation of law becomes necessary because of the nature of power. It is in the nature of power to be oppressive, corrupt and capricious. It is necessary, hence, to protect citizens against the arbitrary and unfettered exercise of power to the detriment or their rights and derogation of their dignity. This can be done only by creating a force, a centre of authority, outside the framework of executive power, envisaged to function in optimum independence from it.

The basic tenet of the rule of law is the total independence of the judiciary and the law enforcing agencies from executive control. If and when the police, for example, become a mere extension of the arbitrary will of the state, it ceases to be a law-enforcing agency. It then serves as the law-subverting agency. Consider this analogy. In the engine of an automobile, power is generated in its combustion chamber. The generation and release of power needs to be regulated, for it to be benign, by carburettor, the accelerator, the clutch and the brakes. Suppose you design an engine, locating all these regulating parts within the combustion chamber itself to function as per its whims, you no longer have an automobile engine, you only have an auto-explosion engine, which is a public menace. Similar is the case with the autonomy of the judiciary and police in respect of the rule of law.

Now, consider what has been playing out in Delhi in the last couple of days. Political leaders, who allegedly tried to take mileage out of the suicide of an army veteran, were detained or arrested. What the police did, and continue to do, remain a matter of semantics, not of law which is, in it, symptomatic. The police themselves do not seem to know what they are doing! Only the party spokesmen do!

The civil rights of the leaders concerned are in suspended animation. What is right and wrong, what is legitimate or otherwise, what is moral or immoral will all be presumably determined by the police, who do not know what they are doing! Should anyone visit a bereaved family, the police will decide. Should you take a stand on a sensitive matter, the police will decide. Should the grieving members of a bereaved family be free to meet someone, the police will decide. And so on. Surely, this is not democracy! It is hilarious when politicians accuse each other of politicising issues. For goodness' sake, please tell us what politicians are supposed to do? To romanticise, theologise, mythologise, and zoologise issues? Are the politicians telling us that politicisation is a subversive and criminal activity? And, by implication, politics is an immoral and dangerous occupation? Will a teacher be accused of academising, a doctor of medicalising, an engineer of engineering an issue?

The irony is not lost on anyone. It is the pot calling the kettle black. The very anxiety about an issue being politicised stems from having already politicised all issues. 'Politicisation' is the prism through which everything is seen today. Which party in our country can claim to be able to look at issues objectively, from the perspective of the welfare of the people rather than cynical power-and-party calculations? This whole hoo-ha about 'politicisation' stems only from a mindset of compulsive and complete politicisation.

Immorality of politicisation

The raging dispute - to which the citizens are not blind or deaf - is not about the immorality of politicisation, but about who should have monopoly over it. The surgical strikes were politicised. The credit was given to Prime Minister Narendra Modi, even to the RSS. We were told that it was not politicisation but patriotism. This is the current logic. We are required to believe that this is not politicisation!

We owe a huge debt of gratitude to the Supreme Court for resisting the move to politicise the judiciary. The independence of the judiciary, based on the doctrine of separation of powers, is a key cornerstone of democracy. It is not in the interests of the citizens that the autonomy of judiciary is sought to be compromised. The situation as of now is that if judiciary does not fall in line, it will be crippled through executive non-cooperation. Judges will not be allowed to be appointed, invoking technicalities of some kind or the other. Traditionally, the media has played a significant role in safeguarding the rule of law by serving as a sentinel of citizens' rights and natural justice. The prospect of the Fourth Estate becoming a tool in the hands of the executive -deferential, glad to be of use - is yet another worry for those who care for democracy.

Listening to some of the TV news anchors these days, one begins to wonder if they are not the masked spokespersons of some party or the other. Nothing is more important - certainly not the proffered plums of magical developmentalism - than upholding the rule of law, undermining which is a nightmare for every citizen.

 

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GST Compensation Bill

 

Source: The Mint

 

 

New Delhi: Government will introduce a bill in the winter session of Parliament beginning next week tabulating the revenue likely to be foregone by each state on account of subsuming of local taxes and the Centre’s contribution to make up for the loss. The GST Compensation Bill will provide a legal backing to the Centre’s promise to compensate the states if their revenue growth rate falls below 14% in the first five years of the goods and services tax (GST) roll out. The base year for calculating the revenue of a state has been decided as 2015-16.

 

“The compensation law would have the taxes subsumed and the revenue forgone by each state on account of GST implementation. It will give details on how the Centre plans to raise funds for compensating the revenue loss,” an official said. A separate law will give the provisions a statutory backing and there will not be any case of any understanding error between the Centre and the states in future.

 

The winter session of Parliament begins on 16 November. The officials of the central government will finalise the draft GST Compensation Law by 15 November and thereafter it would be circulated to the states. The GST council in its meeting on 24-25 November will discuss the proposed law. GST will replace all indirect taxes on goods and services imposed by central and state governments. The Centre and the states have converged to a four-tier GST tax structure of 5%, 12%, 18% and 28% and keeping out essential items out of the purview of the new taxation regime.

 

The Centre will, however, impose a cess on luxury items like high-end cars and demerit goods including tobacco, pan masala and aerated drinks, over and above the the highest 28%. Under the structure, the clean energy cess and cess on luxury items and demerit goods would be utilised to create a Rs. 50,000 crore fund every year which will be utilised to compensate the states for first five years of GST roll out.

The official said the bill would also specify how much revenue is being raised from which item by way of levy of cess and also the way it is reimbursed to the states, thereby leaving no room for ambiguity. Besides, it would also specify that at the end of five years if there is a surplus in the cess pool, in what proportion it should be decided between the Centre and the states, the official added.

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Diwali lights and the winged soul

 

 

Source: By Swapan K Banerjee: The Statesman

 

 

I have been to Hardwar quite a few times drawn by the grace of the river Ganges particularly at the hour when dusk sets in and the pilgrims gather at Har-Ki-Pauri to watch the Ganga Aarti and make a beeline to the river bank to float boats made of fresh green banyan leaves with pink and red flower petals inside and a burning diya in the middle. And the leaf-boats when placed on the water wobble a bit adjusting to the rhythm of the ripples before they get caught in the current and are pulled away into the darkness. Some of them overturn, the diya going out, and capsize in the process. But others, bobbing and tangoing, keep going before you lose track of them. It makes for a wonderful sight.

 

When I was rooted to the roof this Diwali, this image popped up on my mind’s screen time and again. Whichever direction of the sky I looked at, I could see upon the river of air tiny glows of light majestically moving one way like the Ganges in Haridwar, almost in a procession towards the southern horizon.

 

Like the headlight of an airplane, the light would first appear as a speck at the far corner of the northern sky and then move up with a fairly strong wind current and pass me by before going out of sight. Wonder-struck as I kept gazing up and thinking about the torn-kite vulnerability of these lights, I found similar glowing objects (sky lantern, phanush, this year’s show-stopper) taking off from neighbouring roofs.

 

On closer inspection, it turned out to be an object like a hot-air balloon, its bottom open, made up of silky paper, with a fuel cell at the centre which when lit produced hot air filling the paper-shell. The children held the frame for a few minutes as it filled out and the paper-walls got puffed up. Then it gave an ever-so-gentle tug to be free and they let it go. The wind then took it and the journey into the void began.

 

But not all of them made it to the sky. I spotted a couple of them that somehow cleared the parapet wall of the roof and struggled to stay airborne before going down. One of them got stuck in the electric wires above the street lamps causing an uproar among the public for fear that it might lead to a raging fire. Fortunately it wriggled itself free and went weakly up for a few meters before gently landing on the ground, the small fire within it still unextinguished.

 

No two lanterns collided; each was on its own flight path. They maintained the respective altitudes and moved pilotless like drones on a moonless night. What really intrigued me was their fate: what would happen to them when the fuel ran out or the wind dropped? Where were they going to be buried? Would it be in water or land? Or would they finally come to rest on a treetop?

I have inherited a passion for kite-flying from my father who is no more. He had been an expert at kite-duels and had been a kite-runner too! And I, even now, find myself in the midst of a busy thoroughfare, firmly focused on the course of a kite adrift in the air, quite concerned about its extremely uncertain journey, just as I had been when my father suddenly disappeared into the unknown. The sight of the winged lantern fluttering and sailing in the distance utterly exposed to the elements raised the longing in me once again to sail away and see where my father had actually gone.

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Regulating research

 

 

Source: By Paromita Ghosh: The Statesman

 

 

The University Grants Commission has notified its regulations regarding minimum standards and procedures for the award of M.Phil and Ph.D. degrees in the Gazette of India dated 5 July 2016. Institutions of higher learning are examining the document and trying to devise the modalities of implementation. There are several provisions in the regulations which will help researchers. For instance, women researchers will be allowed 240 days of maternity or child-care leave and transfer of their research across universities. Course work was introduced in the M.Phil and Ph.D. programmes a couple of years back and the same is expected to be streamlined with the latest regulations. This is welcome because coursework prepares candidates for conducting research.

 

Archiving soft copies of M.Phil and Ph.D. thesis on the internet was also started a few years back; the current regulations recommend continuation of the practice. The database thus generated will help investigators to review the dissertations. Moreover, it will help check plagiarism.

 

But a few features of the regulations have left the academic circuit in a quandary. Stringent measures have been recommended to improve the quality of research. M.Phil and Ph.D aspirants will have to appear for an entrance test. Half of the questions will assess the candidate’s grasp over methodology and the other half will evaluate one’s knowledge of the subject.  Those candidates who secure at least 50 per cent in the test will be called for interview, where they will be asked to discuss their research proposal. Also to be assessed is their potential to undertake the proposed research. Selected candidates would be enrolled for M.Phil. or Ph.D programmes. After enrolment, research students will have to engage in coursework and qualify.  The evaluation of the researcher’s performance in the coursework will be monitored not only by the department, but also by the institution’s research advisory committee.

 

The new regulations stipulate that researchers will have to present six-monthly reports on their progress to the Advisory Committee for assessment.  In a word, researchers will have to be on their toes. Before submitting the thesis, researchers will have to discuss the highlights of their investigation in a seminar attended by members of the Research Advisory Committee, other faculty members, and research students.  The suggestions of these experts are expected to be incorporated by the researcher in the thesis. Satisfactory performance by the researcher in defence of the investigation will facilitate submission of the thesis. Of course, the pre-submission seminar is nothing new, but the continuation of a rational exercise.

 

Besides, the researchers will have to fulfil certain other conditions before they are permitted to submit their thesis. M.Phil candidates will have to produce evidence that they had presented at least one research paper at a conference or seminar. Aspirants for Ph.D. will have to testify that they have published at least one research paper in an academic journal of repute, and have presented at least two research papers in conferences or seminars. Evaluation of the Ph.D. thesis would be done by the research supervisor and two examiners belonging to institutions other than the one to which the researcher belongs. One of the two external examiners might be from abroad. If the external examiners find the thesis satisfactory and recommend the conduct of viva-voce, the researcher would be permitted to face the viva in an open forum. This examination has to be conducted by the research supervisor and another examiner who does not belong to the same institution as the researcher. In the viva-voce, the researcher would be asked questions based on critiques of the investigation. It will be attended by members of the research advisory committee, other faculty members, research students and experts.

 

After meeting these challenges the researcher is awarded the M.Phil or Ph.D. degree. These regulations are desirable as the aim is to ensure diligence of researchers and improve the quality of research. But the quality of guided research does not depend wholly on the performance of researchers. The role of research supervisors is crucial. The regulations notified by the UGC seem to falter on that score.

 

According to the regulatory authority, a full-time regular teacher of a recognised university or academic institution can supervise M.Phil/ Ph.D research. This in effect excludes retired teachers from research guidance.  Why should a seasoned research guide, who has phenomenal knowledge and is in good health, be debarred from supervising the work of M.Phil or Ph.D. students? The UGC must reflect on this decision. Retired academics with proven track record of research and physical fitness are in a position to devote more time to research guidance than those in service. Ignoring this pool of talent would be detrimental to the cause of learning in the larger perspective. The  UGC has declared that apart from universities or institutions of higher learning, colleges with post-graduate departments and research laboratories of the central or state government could also run M.Phil and Ph.D programmes provided they have at least two teachers or scientists with Ph.D. degrees. The UGC needs to specify whether only academics engaged in post-graduate teaching and research will be entitled to guide M.Phil and Ph.D research. This loophole in the notification needs irgently to be addressed.

 

Moreover, the UGC has stipulated that Professors or Assistant Professors with Ph.D degree and credited with at least two research publications could serve as research supervisors. These requirements can be met very easily. The UGC must raise the bar to ensure excellence in research guidance. Otherwise, inept guides will flood the higher education segment. To enhance promotion prospects, they will be anxious to increase scores in terms of academic performance indicators. The high quality and rigorous process of research, which the UGC is aiming at, will not attain fruition if research supervisors lack expertise.  The academic careers of many researchers would be ruined if they are not supported suitably by supervisors who are themselves active in research. Just as the UGC wants researchers to work hard, it should ensure that guides are equally committed. A mechanism to evaluate roles of the guides must be in place.

The UGC’s ambitious endeavour to nurture excellence in guided research will fail if guides do not serve as path-finders and role models they ought to be. Research supervision is both a science and an art. Instead of handing over the responsibility of guiding research to individuals who lack the wherewithal to do so, the UGC must allow them time to prepare. More publications, more paper presentations, and more projects will obviously figure prominently in the preparation. Besides, hands-on training by veteran research guides would be useful. Orientation and refresher courses should include modules pertaining to research supervision. Novices could begin by guiding M. Phil. students and later graduate to supervision of Ph.D candidates in collaboration with other guides. Only when the reasonably elevated benchmarks are attained by academics, should they be allowed to guide Ph.D. candidates independently. If the UGC realises the lopsided nature of its regulations and initiates a course-correction, can we expect research work that is marked by brilliance and scholarly rigour?

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Artificial intelligence

 

 

Source: By Nandagopal Rajan: The Financial Express

 

 

Artificial intelligence is the next big thing in the world of computing, and it is already there. Google’s Pixel smartphones, which come with an inbuilt Google Assistant that can get you anything from the daily dose of news to meditation tips, has already started selling in India. Siri is more intelligent than before; it lets you chat her up to find a good place to eat nearby and even draft an email for you.

 

But the biggest use of artificial intelligence might be in bringing down the bar to access for millions of people who find all the text and foreign languages on smartphones hard to comprehend. That is exactly what companies like Karbonn, who think more mass than niche, are working on. In fact, this Indian smartphone manufacturer has already launched a smartphone that comes with artificial intelligence that will aid commerce—they call it visual commerce.

 

“Our use of artificial intelligence for commerce is a first. With our Fashion Eye smartphone, users will be able to click the photo of a shirt, after which the artificial intelligence engine will throw options of where you can buy the same or a similar product across online sellers,” says Shashin Devsare, executive director, Karbonn Mobiles. Look at it from the angle of an entry-level smartphone user. She likes a shirt and all she has to do is click a photo of the same for the artificial intelligence engine to figure out where she can buy it at the best price.

 

Homegrown smartphone companies like Karbonn have an eye on the average Indian customer and what she needs, and is not always looking to make an impact with top-end features or specifications. “There are a lot of multinationals who think 250 million is a huge number, but it is their outlook. Our interest is in the next half a billion users; that is where Karbonn is focused,” says Devsare.

 

Devsare says it is unfair to believe that expectations from technology are going to be different for the rural market. “But we accept that affordability is hugely different.” These customers might be willing to make some compromises, he says, but those are not large enough for them to qualify them as a completely different breed altogether. “We are making strides to address the differentiated customers.” Karbonn’s focus is in terms of bringing about the smart telephone experience in “a simple and beautiful manner,” he adds.

 

Sounding a bit ominous, he says that it is apparent that Indian smartphone market is showing symptoms of reaching a tipping point, though it has still achieved only 30% penetration. The 3.9% growth Gartner recorded in the first quarter of 2016 can also be attributed to the sales of entry-level smartphones. Devsare says the only way to overcome this hurdle is to deliver an optimised hardware experience, while making the software relevant and rendered in terms of the right language and user interface. And language, at the moment, is the biggest hurdle for adoption of smartphones.

 

In fact, Karbonn’s experience with languages has been very positive. Insights from its K9 Smart entry-level device—its top seller in terms of volume, which offered native access to Indian languages—showed that this prompted 93% users to switch on data and at least half of them to start using the language in operating system. The company is now partnering with Indus OS to bring 21 languages to some new phones.

Google, too, knows that language will be the next big impediment for users to go online or, for that matter, even own a smartphone that will give them access to the internet. That is, local languages are getting a big push. Hindi is already among the languages getting the most attention. Artificial intelligence, too, will come next in Hindi on Allo, the good thing being that users will not need to type anything to interact with Google Assistant. There is a lot of stress on voice driving the next level of search so that more people use it. You already see a lot of Indians use this in day-to-day life and the numbers are only going to increase. Artificial intelligence will also make those search results better. While now it is more machine intelligence, this machine is also learning from the millions of queries it is processing each day. Soon it will be able to improve the quality of search results and maybe even customise it more for the user. Yes, artificial intelligence is here.

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Contradiction in terms

 

 

Source: By Sam Rajappa: The Statesman

 

 

Colachel is a historical natural port on the Arabian Sea coast, 20 km from Nagercoil, and district headquarters of Kanyakumari in Tamil Nadu. In the early days of European colonialism, the Portuguese and the Dutch vied with each other to take control of Colachel. It was part of the princely State of Travancore. The navy of the Dutch East India Company led by Admiral Eustachius D’Lanoy captured Colachel and moved into the hinterland as far as Padmanabhapuram, then capital of Travancore. King Marthanda Varma led his army in Colachel from the north-west, defeated the Dutch marines and took D’Lanoy prisoner of war on 10 August 1741. A pillar erected to commemorate the victory of Travancore against an European power, still stands at the entrance to the old Colachel port. Impressed by the valour of Marthanda Varma’s army, D’Lanoy offered to serve the king and ended as the Valiya Kappithan (Chief Admiral) of the Travancore Navy.

 

A draft of 20 metres close to the coastline and its proximity to international shipping lanes makes Colachel an ideal place to be developed into a major port. Caught in linguistic and political cross-currents, Colachel remained a neglected minor port since independence. Feasibility reports to convert it into a major port were prepared in 1998, 2000 and 2010 as it is hardly four nautical miles from the international East-West shipping route through which large container ships pass, but nothing came of it due to political neglect. The Congress had virtually given up Tamil Nadu ever since power passed into the hands of the DMK and the AIADMK almost half a century ago. Neither of the Dravidian parties could sink roots in Kanyakumari, the most literate district of Tamil Nadu. They too left Kanyakumari out of their developmental agenda.

 

Therefore, it came as a big surprise when the BJP government of Narendra Modi on 5 July issued a press release stating “the Cabinet approves setting up of an ultra-major port at Enayam, near Colachel”. The BJP drew a blank in the May election to the Tamil Nadu Assembly. The release said a Special Purpose Vehicle was being formed for the development of the port with initial equity investment by the three major ports in Tamil Nadu -- the Chennai Port Trust, Kamarajar Port Limited, Chennai, and the VO Chidambaranar Port Trust, Tuticorin. Subsequently, Parliament has been informed that the proposed deep sea trans-shipment port proposed to be developed will entail a cost of Rs 27,570 crore and work will start soon. It was also reported that the Prime Minister, along with the Tamil Nadu Chief Minister, would lay the foundation stone for this mega project. There were also reports that an Indian conglomerate has started building a deep sea trans-shipment port in Vizhinjam, 30 km north-west of Colachel on the Kerala coast, at a cost of Rs 7,500 crore and that the Union government was granting Rs 1,600 crore as viability gap funding. The Prime Minister has stated that Vizhinjam will not affect Colachel and that both projects will function well. International clients were being offered discounts to attract cargo to both these ports.

 

Even three months after the announcement, there is no sign of the foundation stone-laying ceremony in Colachel while work is progressing in Vizhinjam. Questions raised under the RTI Act on whether the Union Cabinet has given formal sanction for the Colachel port costing Rs 27,500 crore evoked negative response. The government has not released even a rupee for the project so far. No detailed project report has been prepared so far nor any land acquired for the project. Environmental Impact Assessment and Social Impact Assessment are yet to be completed. Nevertheless, Pon Radhakrishnan, Union minister of shipping and Lok Sabha member from Kanyakumari district, based on the ‘in-principle approval’ by the Union Cabinet, has become hyperactive. He got TYPSA Consulting Engineers and Architects, through the VO Chidambaranar Port Trust, to study the techno-economic feasibility of developing Colachel into a major port. The earlier studies on the project are gathering dust in the corridors of the shipping ministry. But his agenda is somewhat different. In the name of Colachel, he wants the project to come up in nearby Enayam, centre of the fishing industry in Kanyakumari. He tweaked TYPSA to produce a tailor-made report to shift the location of the project from Colachel to Enayam.

 

To hide the shifting the location, he christened the project Colachel Port at Enayam. Colachel port can only be in Colachel. TYPSA went through the motions of studying the entire Kanyakumari coastline, identified four possible locations and zeroed in on Enayam, the most populated fishing village. Sandwiched between the fishing hamlets of Puthanthurai and Thenkapattanam in the north-west and Helen Nagar, Melmidalam, Midalam, Karumpanai, Vanyakudi, Kodimunai, Panavilai and Simon Colony in the south-east, people of this heavily populated area will have to be evacuated and resettled. All these villages will be permanently lost during the construction and operation of the project if Enayam was chosen instead of Colachel. The population of these villages is entirely made up of Catholics and Muslims. The fishing industry is a major contributor to the district’s economy. It will be ruined.

 

Unlike Colachel’s soft sea bed and least inhabited seafront to its entire south-east, the Enayam coast and sea bed are rocky, making dredging extremely difficult. Speaking on the economic analysis of the proposed port in Enayam at a recent seminar in Chennai, Sahitya Akademi Award winner and shipping consultant Joe D’Cruz said the sea around was vulnerable to natural calamities and the marine ecology would be destroyed if the project was implemented. Enayam is highly prone to sea turbulence, including tsunamis, said D’Cruz. Due to strong and continuous south-west water currents, artificial breakwaters would have to be constructed at Enayam where the sea is always turbulent. The available draft is only 18 metres whereas the requirement to berth large container ships is 20 metres. In the face of all the adverse factors, Enayam is least suited for the proposed major port but Radhakrishnan insists on Enayam, which comes under the Killiyur Assembly constituency. His plan is to change the demographic profile of Killiyur by resettling the fisher community numbering about 100,000 inhabiting Enayam and neighbouring villages in the hinterland which comes under the adjacent Vilavancode Assembly constituency, a Congress stronghold. The BJP’s candidate in Killiyur alone in the district was able to retain his security deposit in the May election. Radhakrishnan thinks he can make Killiyur safe for the BJP by this demographic change.

India has 72 sea ports of which 13 are classified as major ports and 10 as intermediate ports, but the country lacks a master plan for the development of ports. It needs to be addressed before clearing any new port. Vallarpadam container transshipment port next to Kochi port could achieve only 40 per cent capacity in the last five years of operation and has been running at a loss.  Another container trans-shipment port is already coming up at Vizhinjam on the Kerala coast hardly 30 km from Enayam. Hinterland connectivity is much more important than just putting up a port, which is badly lacking. Envisaged as a gateway container trans-shipment hub for cargo moving to and from India along one of the world’s major shipping lanes connecting the Suez Canal to East Asia, Colachel at Enayam, a contradiction in terms, is being projected as a competitor to Colombo, Dubai and Singapore. Given the fact that Vallarpadam, almost in the same shipping lane, has not been able to compete with Colombo, let alone Dubai and Singapore, it would be a challenging task to attract traffic for the new port. With close proximity to Vizhinjam which has a head start and Vallarpadam already in place, whether the Colochel at Enayam trans-shipment hub with a huge investment of Rs 27,570 crore can be justified in terms of traffic it aims to attract, is debatable. With global trade still becalmed by the worldwide economic slowdown, the outlook for container shipping remains cloudy. There is a pressing need for India to develop a cohesive strategy for holistic development of the port sector.

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Another crisis coming

 

 

Source: By Alok Ray: Deccan Herald

 

 

The shadow of the Great Recession beginning from around mid-2008 is still not over for many countries. Even after eight long years, the current growth rate is below the trend growth for all the major economies in the developed world, despite zero or even negative interest rates. Some analysts believe that another crisis may occur anytime. At the same time, another group of influential economists is talking of the possibility of a longer-term secular stagnation for countries like USA or the European Union members.

 

What causes the prevailing gloom? A number of factors in combination are being held responsible. Even economists who generally believe that globalisation of trade and FDI have brought enormous benefits are highly critical of the role of financial globalisation. They are particularly sceptical about the benefits of financial innovation in the form of complex derivative instruments which many investors do not properly understand. Apart from big loans to well connected businessmen with dubious collateral assets, the banks - increasingly in search of commissions and fees - are still pushing loans for the purchase of houses, automobiles and consumer articles, in excess of the repayment capabilities of many borrowers.

 

Some analysts focus on a more fundamental problem in the form of a 'global savings glut'. Several countries - including China, Japan and Germany in particular - have amassed huge savings in the form of current account surpluses (and foreign exchange reserves) which are far more than the available investment alternatives in the global economy, even at zero interest rates.

 

Planned saving (a leakage) exceeding planned investment (an injection) exerts a downward pressure on global demand which results in falling output (recession) and/or falling prices (deflation). More countries like China and Germany grow on the basis of massive current account surplus, it becomes so much difficult for other countries with corresponding deficit (like theUS and much of non-German EU) to maintain growth by creating adequate demand.

 

The tendency of inadequate expenditures is being further accentuated by several factors. One, huge debt overhang (both public and private) from earlier periods is still restraining current expenditures in many developed countries. Two, rising income inequality (redistribution from wages to profits and within wages to a small percentage of people at the top) is reducing aggregate expenditures as the marginal propensity to spend is lower for the richer people.

 

Third, a premature winding of fiscal stimulus to counter recession (for the fear of unsustainable public debt) and almost exclusive reliance on monetary stimulus going to the extreme of negative interest rates beyond which it cannot go any further. Maintaining a near-zero interest rate for over seven years in countries like USA and even longer in countries like Japan (now having negative policy interest rate) always runs the risk of fuelling a credit bubble in stocks and housing markets. Monetary policy focusing on inflation targeting does not help much to curb this credit bubble as the resulting inflation in housing and stock markets does not get adequately reflected in the wholesale or consumer price index which is the measure of inflation used in inflation targeting.

 

Further, given the paucity of both public and private expenditure to maintain full employment or the trend growth rate of the past, there is always the macroeconomic need for boosting consumption expenditure by expansion of credit. Therein lies the risk of fuelling another financial crisis starting with excessive bank credit and then a sudden halt to credit flows even to otherwise sound companies and borrowers once the repayment problem from unsound borrowers rears its head. Also, despite a lot of talk on the need for rebalancing in China and Germany from export-led growth to consumption-led growth, no significant progress has been achieved so far. Consequently, the chances of a secular stagnation arising out of the continuing global savings glut are considerable.

 

State-owned banks

 

A greater worry than a slowing China is the way China is trying to maintain its credit-fuelled growth by injecting even more credit through the state-owned banks which increases the risk of a harder landing later. The huge excess capacity built in the steel, cement, glass and other construction related sectors in China and its attempt to dump these at low prices in the global markets is making it even more difficult for the competing firms in other countries to sustain their output and profits.

 

What could be the possible way out? Some suggest a far greater reliance on fiscal stimulus without bothering about the creation of public debt. In fact, given the near-zero real interest rate, this could be the golden opportunity for the governments to borrow and spend on creating and improving the infrastructure in both developed and developing economies.

 

This would raise the productive capacity and potential growth rate of the future along with creating aggregate demand in the short-run which is the urgent need of the hour. Higher growth may well cut the budget deficit to GDP ratio (and new debt creation) by raising tax revenues, reducing expenditure on unemployment benefits and raising the denominator (GDP).

Is another global recession round the corner? Here, analysts differ. Even the doomsayers are talking of a high probability of a big recession in the next four years or so, though not in the immediate future. But, then, don't forget that historically, on average, a recession has hit the world economy once in five-six years. Therefore, the forecasters may well be right, even if their underlying analysis may not be exactly correct.

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India’s brush with reality

 

 

Source: By Jayachandran: The mint

 

 

Reading the World Bank’s much awaited “Doing Business 2017” report from India’s perspective can be a disorienting exercise. The report is fulsome in its praise of various reforms undertaken by the Narendra Modi government. It recognizes reforms under four of the 10 headers—a press release by the ministry of commerce and industry said this is the highest number achieved yet by India—it ranks all economies on. The “distance to frontier” (DTF) score—used by the World Bank to measure the distance between each economy and the best performance in that category—has improved for seven of those 10 headers. The report especially lauds India for achieving significant reductions in time and cost to provide electricity connections to businesses. But for all of this, India has moved up just one notch—from 131 to 130—in the overall rankings.

 

The expectations were far higher given Modi had made this a top priority. So what went wrong? First, some of the reforms undertaken missed this year’s bus—this report accounts for reforms which had been implemented by 1 June 2016. Indian officials are now expecting a bounty in next year’s report. India also hopes that the insolvency and bankruptcy code will be implemented before the cut-off date for next year’s report but that may be too optimistic. The code’s implementation may take a few more years and India will continue to score poorly on the “resolving insolvency” parameter.

 

Second, one particular change in the ranking methodology seems to have done considerable damage to India’s improvement prospects. The World Bank has included a new criterion “postfiling index” under the header “paying taxes”. Used in the report to measure the efficiency of “processes that occur after a firm complies with its regular tax obligations”, the post-filing index is a criterion in which India finds itself fourth from the bottom. Only Afghanistan, Timor-Leste and Turkey fall behind.

 

Third, there are other countries too trying their best to climb up the ease of doing business rankings. In fact, the report mentions that the number of countries that have implemented at least one reform have increased from 122 to 137. In 2015-16, it says, 137 economies implemented 283 business regulatory reforms—an increase of more than 20% over last year. The improvement in DTF scores of the top 10 performers identified in this report ranges from 5.28 of Brunei Darussalam to 2.05 of Bahrain. India’s DTF score improved by 1.34.

 

The gulf that will matter at home is not the one between India and Brunei or, for that matter, even between India and Pakistan—the latter features among the top 10 performers but is still behind India at the 144th rank. What will matter is the huge distance between India’s current rank of 130 and Modi’s target of breaking into the top 50 by 2018. While his attempts may have been sincere, to Modi’s detractors the whole campaign was never anything more than a public relations exercise under the name of “Make In India”, with a slick website and a felid as the logo to boot.

 

In light of the target, which seems unrealistic, four points can be made. One, while setting an ambitious target around a rank-based system can help rally the bureaucracy like nothing else; it should not be as way off as this one is proving to be. Modi should not forget that a key aspect of political leadership is expectation management. Two, Modi should despatch a couple of envoys to Georgia and Kazakhstan each. In 2006, Georgia’s rank was 100; this year it ended up at No.16. Kazakhstan (now ranked 35) joined Georgia among the top improvers for the fourth time in the last 12 years. These two countries show that significant strides can be made if the target timeline is reasonable enough.

 

Three, these rankings cover only the two cities of Delhi and Mumbai. A ranking of states last year showed the states of Gujarat, Andhra Pradesh, Jharkhand, Chhattisgarh and Madhya Pradesh leading the charts in implementing business reforms. Therefore, India’s overall position may well be better than what this latest report shows. There is also a lesson here that India should not just go for the ticking-the-box approach. The government should implement reforms at the Centre and encourage all the states to do the same even if many of them will not be counted in the World Bank rankings.

 

Four, any ranking process has its limitations. The World Bank’s “Doing Business” report clubs the emerging markets together with advanced economies, the war-torn together with the Scandinavian serenities. Such an approach gives a grand ranking system but is hardly useful in predicting, for instance, the flow of capital. While New Zealand may occupy the first rank and India the 130th, it can be safely said that the latter will attract far greater foreign direct investment in the coming year. Even among the Brics (Brazil, Russia, India, China, South Africa), India would appear the real straggler if the “Doing Business” report is to be believed. Most analysts would say, instead that, it is the shining survivor of the five-member group.

The flaws of the ranking system, however, do not mean that India should not try and improve its position in areas identified by this report. India has a long battle to fight against red tape and targeting improvement in the “Doing Business” rankings should be part of the battle plan.

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The world economy without China

 

 

Source: By Stephen S Roach: The Financial Express

 

 

Is the Chinese economy about to implode? With its debt overhangs and property bubbles, its zombie state-owned enterprises and struggling banks, China is increasingly portrayed as the next disaster in a crisis-prone world. I remain convinced that such fears are overblown, and that China has the strategy, wherewithal, and commitment to achieve a dramatic structural transformation into a services-based consumer society while successfully dodging daunting cyclical headwinds. But I certainly recognise that this is now a minority opinion.

 

For example, US treasury secretary Jacob J Lew continues to express the rather puzzling view that the United States “can’t be the only engine in the world economy.” Actually, it’s not: the Chinese economy is on track to contribute well over four times as much to global growth as the US this year. But maybe Lew is already assuming the worst for China in his assessment of the world economy.

 

So, what if the China doubters are right? What if China’s economy does indeed come crashing down, with its growth rate plunging into low single digits, or even negative territory, as would be the case in most crisis economies? China would suffer, of course, but so would an already-shaky global economy. With all the handwringing over the Chinese economy, it’s worth considering this thought experiment in detail.

 

For starters, without China, the world economy would already be in recession. China’s growth rate this year appears set to hit 6.7%—considerably higher than most forecasters have been expecting. According to the International Monetary Fund—the official arbiter of global economic metrics—the Chinese economy accounts for 17.3% of world GDP (measured on a purchasing-power-parity basis). A 6.7% increase in Chinese real GDP thus translates into about 1.2 percentage points of world growth. Absent China, that contribution would need to be subtracted from the IMF’s downwardly revised 3.1% estimate for world GDP growth in 2016, dragging it down to 1.9%—well below the 2.5% threshold commonly associated with global recessions. Of course, that’s just the direct effect of a world without China. Then there are cross-border linkages with other major economies.

 

The so-called resource economies—namely, Australia, New Zealand, Canada, Russia, and Brazil—would be hit especially hard. As a resource-intensive growth juggernaut, China has transformed these economies, which collectively account for nearly 9% of world GDP. While all of them argue that they have diversified economic structures that are not overly dependent on Chinese commodity demand, currency markets say otherwise: whenever China’s growth expectations are revised—upward or downward—their exchange rates move in tandem. The IMF currently projects that these five economies will contract by a combined 0.7% in 2016, reflecting ongoing recessions in Russia and Brazil and modest growth in the other three. Needless to say, in a China implosion scenario, this baseline estimate would be revised downward significantly.

 

The same would be the case for China’s Asian trading partners—most of which remain export-dependent economies, with the Chinese market their largest source of external demand. That is true not only of smaller Asian developing economies such as Indonesia, the Philippines, and Thailand, but also of the larger and more developed economies in the region, such as Japan, Korea, and Taiwan. Collectively, these six China-dependent Asian economies make up another 11% of world GDP. A China implosion could easily knock at least one percentage point off their combined growth rate.

 

The United States is also a case in point. China is America’s third-largest and most rapidly growing export market. In a China-implosion scenario, that export demand would all but dry up —knocking approximately 0.2-0.3 percentage points off already sub-par US economic growth of around 1.6% in 2016. Finally, there is Europe to consider. Growth in Germany, long the engine of an otherwise sclerotic Continental economy, remains heavily dependent on exports. That is due increasingly to the importance of China—now Germany’s third-largest export market, after the European Union and the United States. In a China implosion scenario, German economic growth could also be significantly lower, dragging down the rest of a Germany-led Europe.

 

Interestingly, in its just-released October update of the World Economic Outlook, the IMF devotes an entire chapter to what it calls a China spillover analysis—a model-based assessment of the global impacts of a China slowdown. Consistent with the arguments above, the IMF focuses on linkages to commodity exporters, Asian exporters, and what they call “systemic advanced economies” (Germany, Japan, and the US) that would be most exposed to a Chinese downturn. By their reckoning, the impact on Asia would be the largest, followed closely by the resource economies; the sensitivity of the three developed economies is estimated to be about half that of China’s non-Japan Asian trading partners.

 

The IMF research suggests that China’s global spillovers would add about another 25% to the direct effects of China’s growth shortfall. That means that if Chinese economic growth vanished into thin air, in accordance with our thought experiment, the sum of the direct effects (1.2 percentage points of global growth) and indirect spillovers (roughly another 0.3 percentage points) would essentially halve the current baseline estimate of 2016 global growth, from 3.1% to 1.6%. While that would be far short of the record 0.1% global contraction in 2009, it wouldn’t be much different than two earlier deep world recessions, in 1975 (1% growth) and 1982 (0.7%).

I may be one of the only China optimists left. While I am hardly upbeat about prospects for the global economy, I think the world faces far bigger problems than a major meltdown in China. Yet I would be the first to concede that a post-crisis world economy without Chinese growth would be in grave difficulty. China bears need to be careful what they wish for.

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A misplaced idea

 

 

Source: By Vappala Balachandran: Deccan Herald

 

 

There has been a lot of media attention on how Pakistan has been isolated (even outmanoeuvered) with the successful postponement of the November 2016 South Asian Association for Regional Cooperation (Saarc) summit at the instance of India and three other member nations - Bangladesh, Bhutan and Afghanistan. But behind the scenes, isolation from one platform may lead Pakistan to concentrate its energies elsewhere.

 

What is probably emerging and may gain fillip is a parallel regional economic alliance with China, Iran and the Central Asian states - an alliance that can offer Pakistan the opportunity to exploit many new opportunities not only for cementing economic bonds but also building or strengthening political equations. To understand how this dynamic may unfold, it is useful to look at how a platform like Saarc has grown over the years though neither India nor Pakistan were initially warm to the idea of such a formal regional alliance. The heightened mutual suspicion in the light of the Uri terrorist attack has brought back a divergence that has been in many ways wired and imprinted into Saarc right from its inception.

 

In fact, both India and Pakistan were initially cool to the idea of Saarc when it was originally mooted by Bangladesh President Ziaur Rahman during his meeting with Prime Minister Morarji Desai in December 1977. Bangladesh was keen to form this alliance after its quest for Association of Southeast Asian Nations (Asean) membership was unsuccessful. In 1977, King Birendra of Nepal supported the idea during a meeting in Colombo. In 1979, Ziaur Rahman got president J R Jayawardene's approval during his Colombo visit.

 

India and Pakistan were late starters. Security disputes were dominant in their thinking. While India felt that smaller powers would gang up against her, Pakistan thought that India would use her greater influence on security disputes and dominate the market. It was for this reason that the 1980 Bangladesh draft paper on Saarc avoided all references to bilateral issues, whether security or political. The first Heads of States meeting was held in Dhaka in December 1985.

 

It is not that the Saarc forum was not used to defuse Indo-Pakistan bilateral tensions. Just a year after the first Heads of State meeting, the Bangalore Summit in 1986 could soften tensions arising out of India's military exercise "Brasstacks" on the Indo-Pak border. The 1991 Colombo summit paved the way for both prime ministers to meet again in Davos in 1992. In June 2010, our Intelligence Bureau (IB) chief accompanied then home minister P Chidambaram for the Saarc interior ministers' meeting. Similarly, then prime minister Manmohan Singh asked the IB chief to accompany then home secretary R K Singh for his bilateral meeting in Islamabad in May 2012. All these were confidence building measures (CBMs).

 

However, it is also true that Pakistan was distancing itself from South Asia and looking for opportunities to build alliances with China and in West Asia. This has been a gradual process but it has led to China becoming Pakistan's biggest trading partner by 2012, garnering 17% of its total trade as against the European Union (13%), US (6.7%) and India (3.2%). Would Pakistan be adversely affected by going away from Saarc? Pakistan government statistics do not indicate that this would be the case. The percentage of Pakistan's imports from some Saarc countries during July 2015-May 2016 was: 1.33% from India, 1.33% from Sri Lanka, 3.09% from Bangladesh and 6.29% from Afghanistan. Other Saarc countries are not even mentioned. Only India (4.10%) is mentioned among Pakistan's exports to Saarc countries. China with 27.22% share tops the list of Pakistan exports.

 

Today, 8.5 million (about 4% of the Pakistani population) work abroad. About 3.8 million Pakistanis live in the Gulf. They sent $19.3 billion home as remittances in 2015. Pakistan is now banking on the $ 46 billion Kashgar (China)-Gwader(Balochistan) "China-Pakistan Economic Corridor" to develop that huge area. As many as 51 MoUs were signed during the Chinese president's 2015 visit to Pakistan for projects worth $46 billion in various sectors like security, infrastructure and energy.

 

Commercial grouping

 

Former Prime Minister Shaukat Aziz (2004-2007) told a conference in Hong Kong just last month that more than 6,000 workers were employed in this project in the first three months of this calendar in addition to indirect employment. Pakistan's new proposal to start a new, expanded economic and commercial grouping could be because of this recently found confidence even after being isolated in Saarc. What would be India's loss if Pakistan leaves Saarc? It will confirm Pakistan's oft-repeated complaint, supported at times even by Nepal, Bangladesh and Sri Lanka, that India is a regional bully. As the famous South Asian journalist Kanak Mani Dixit had observed: "Even if New Delhi does not act threateningly, the mere possibility of its regional domination elicits a defensive response from the neighbours."

Also, India would lose another forum for ironing out differences with Pakistan when bilateral meetings are suspended due to frosty relations, as is the case now. For example, the 12th Saarc summit at Islamabad in January 2004 had launched the "composite dialogue" on bilateral contentious issues including Kashmir during the Vajpayee-Musharraf meeting, resulting in the Indo-Pakistan joint press statement of January 6, 2004. What this suggests is that in a dynamic world, ideas of isolation may not be the best way to either build ties or contain threats. Instead, there is a case that can be made out that India in itself could be poorer because it will lose a convenient multilateral forum to defuse tensions as has been often done in the past.

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Chinese business model - II

 

Source: By Shantanu Basu: The Statesman

 

There are gains too for the People's Republic of China and the recipients of CPEC-like investment. Low-cost PRC imports would flood the recipient country's markets. These countries would gain by physical infrastructure, somewhat greater low-wage employment and relatively cheaper and deeper access to markets, old and new. However, repayment defaults could cause concessions for establishing EPZs in recipient countries for PRC manufacturing and distribution hubs that, in turn, would cause a situation akin to indigo cultivation by the British in India in the 18th century. Access to several ports stretching from Chittagong to Bandar Abbas and Gwadar combined by 4/6-lane network of motorways from port and rail heads and dotted with international airport and tax-free EPZs will no longer remain a pipe dream for PRC and its client countries. Backing PRC's business pincer movement is the rapidly modernising People's Liberation Army.

What do the PRC's investments imply for India's strategic policy? For one, India has neither the financial muscle nor industrial and military wherewithal to rival PRC. Prime Minister Modi's offer of a $2 billion line of credit to Bangladesh pales in comparison to PRC's recent $ 24 billion. Second, given the short-term political attractions of PRC investments for recipients, most Indian diplomatic sops will remain insignificant. Equally, India may find itself increasingly isolated from its extended neighbourhood as no recipient country will sacrifice PRC's politico-economic savvy offers for supporting India in its bilateral strategic disputes with Pakistan and PRC or for NSG/SCO membership. For those would imperil PRC's 'generosity' given its steadfast refusal to go along with India in condemning Pakistan for its alleged support to terror strikes in Kashmir. India's 'surgical strikes' have therefore predictably not caught the fancy of the BRICS summiteers in their recent joint statement in Goa nor brought any pressure to bear upon PRC to remove its UN embargo on declaring Hafiz Sayeed a wanted terrorist.

Third, India's vast littoral advantage may be negated by overland transit arrangements that PRC's OBOR contemplates, leaving India a bit player in South Asia. Fourth, India's 10:1 trade imbalance with PRC undermines the integrity of India's recent overtures to the US. India's pronounced inability to stop non-essential imports from PRC, including decorative Diwali lights and mosquito swatters, would be at the cost of the trade deficit widening with retaliatory measures by PRC. Let us also not forget the 50,000 Indian nationals who live in PRC and another 15,000 students. Fifth, India's recent Western bias, particularly in defence cooperation, is not much different from the PRC investment model, since the Americans, French and other western powers see the relationship in purely commercial terms, something they seldom did with Pakistan. Finally, India shares an extensively disputed border with PRC and Indian defence services currently are not in the pink of fighting health, notwithstanding protestations to the contrary. With CPEC cutting through Pakistan-occupied Indian Territory, PRC has virtually announced its commitment to retain the status quo ante and upping the stakes in Ladakh and Arunachal Pradesh to keep the pot boiling as a counterfoil to India. Moreover, slow construction progress on Chabahar, just a 6-hour and 356 km drive from Gwadar, may drive more shipping to Gwadar and Bandar Abbas (956 km) and make Chabahar a commercial millstone around India's neck unless this port becomes fully operational by 2018-19.

OBOR has found a new client in Bangladesh very recently. China Railway Group, one of the world's largest construction companies, won a $3.10 billion project to build a rail network in Bangladesh connecting Dhaka to Jessore. Among other projects contemplated are a coastal expressway, a satellite township, a railway line and port expansion, including ports like Chittagong and Cox's Bazar. Other probable projects are the Padma Bridge Rail Link ($3.30 billion), Marine Drive Expressway ($2.80 billion), strengthening power networks ($3.36 billion), Dhaka-Sylhet motorway ($1.60 billion), etc. Bangladesh has strongly backed both PRC's geo-economic initiatives like OBOR and Maritime Silk Route even as India has reacted to these warily. Bangladeshi ministers have also been strongly advocating the Bangladesh-China-India-Myanmar (BCIM) trade corridor, another Chinese initiative to which the Indian reaction has been muted. On 14 October, Bangladesh and China signed 40 agreements totalling about $20 billion, including CPEC-like infrastructure projects.

On a different plane, Beijing has concluded a series of contracts with Kazakhstan worth $30 billion, 31 agreements of $15 billion value with Uzbekistan, and natural gas transactions with Turkmenistan in 2013, which reached about $16 billion. China has also provided loans and aid worth $8 billion to Turkmenistan and is expected to provide at least $1 billion to Tajikistan. Turkmenistan, which has the world's fourth largest gas reserves, is the biggest supplier of natural gas to China, accounting for more than 50 per cent of the total imports. CNPC has already beaten India's ONGC in a $4.18 billion bid for Petro Kazakhstan. PRC has expended $48 billion in Kazakhstan. In Tajikistan, CNPC and France's TOTAL in June 2013 agreed with Tethys Petroleum Ltd to develop oil and gas assets under the country's Bokhtar project which is estimated to have 3.22 trillion cubic metres of gas and 8.50 billion barrels of oil. Tajikistan's reserves could meet China's natural gas consumption for an estimated 24 years.

SINOPEC bought a portion of Russian producer Udmurtneft in 2006. In 2013, PRC acquired 12.50 per cent of Russia's Uralkali, the biggest producer of potash, and CNPC agreed to prepay OAO Rosneft about $70 billion as part of a $270 billion, 25-year supply deal. That was followed by Rosneft's $85 billion, 10-year accord with China Petrochemical Corp and CNPC's purchase of 20 per cent of an Arctic gas project from Novatek for an undisclosed sum. A Russia-China pipeline would double pipe capacity from 300000 to 600000 bpd by end-2016. In fact, in 2014, China overtook Germany as Russia's biggest buyer of crude oil, thanks to Rosneft securing deals to boost supplies via the East Siberia-Pacific Ocean pipeline and another crossing Kazakhstan. PRC and Russia also signed a $400 billion mega gas deal for 30 years for 1.3 trillion cubic feet of natural gas per year, starting from 2018. In 2015, CNPC acquired 20 per cent of a $27 billion LNG project in Russia's far north and is now looking at Russian equity offers in oil licence blocks in the Arctic and East Siberia.

Having taken care of its energy and deep-water Arabian Sea port needs, China has also sought to develop high-speed rail links with Russia. Among recently signed projects is the construction of an ambitious high-speed rail link from Moscow to Beijing that would cut the journey from six days on the Trans-Siberian Railway to just two. The project would cost more than $230 billion and run over 7,000 km with Chelyabinsk, Ekaterinburg and Kazakhstan, en route. China will participate in financing the railway's construction, as well as in geological research. The China Railway Corporation will finance and construct the Samara-Togliatti railroad in SE Russia. Russia's Far East to China is proposed to be covered in a 250 km high-speed rail link.

Earlier this year, China agreed to provide a $6.20 billion loan for East-Central Russia's Moscow-Kazan High Speed Rail Project. Going further, the 11000 km long Yiwu-Teheran line saw the first freight train chug into Teheran in mid-January 2016. PRC-Iran trade rose from $4 billion in 2003 to $53 billion in 2013.  In January 2016, during the visit of President Xi Jinping to Iran, the two sides agreed to increase trade to $600 billion over the coming decade. While building a railway over the Karakoram is a major engineering challenge, China's Iran corridor only needs to modernise the existing road and rail links between China, Central Asia and Iran for access up to Bandar Abbas and Chabahar and beyond to Europe.

The PRC's strategic business model deserves accolades as it treads though a minefield of corruption, ethnic strife, inhospitable terrain, competing intra-national claims, international border disputes, militancy and terrorism and many more adversities, yet adding to that country's wealth and political significance. India has therefore many lessons to learn from the Chinese experience.  This country has tremendous internal strength and resilience, natural resources and favourable climate, a 6000 km littoral frontier and a young labour force. Regrettably, historical apathy of its political and economic stewardship has been and remains India's greatest failure as also the lack of any long-term strategic vision. India has to get its domestic economy ticking again and await an anti-PRC sentiment to emerge when default and dissension in the recipient countries emerge. Till then grandstanding would remain its sole virtue and vice.
 
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Chinese business model-I

 

 

Source: By Shantanu Basu: The Statesman

 

 

The China-Pakistan Economic Corridor (CPEC) has incurred adverse reactions in India over its strategic implications, but just what is the CPEC all about? In December 2014, the People’s Republic of China (PRC) established the Silk Road Fund (SRF) as a fund management company to extend investment and financial support to CPEC projects and to promote industrial cooperation with Pakistan. The SRF is a consortium of leading Chinese banks, including the China Exim Bank and the China Development Bank. It had an initial corpus of $10 billion that was subsequently raised to $40 billion. For CPEC projects, all SRF-financed loans will be insured by the China Export and Credit Insurance Corporation (Sinosure) against non-payment risks while the security of loans is guaranteed by the host state. There is no grant-in-aid component, unlike American handouts to Pakistan in the past, and PRC’s financing and implementing agencies will hold proportionate equity in the Pakistani host entity Rs strategic advantage profitably piggybacking on great business.

 

What projects does the CPEC cover? All 49 CPEC projects would be executed with the financial and logistical participation of the federal and state governments and the private sector of Pakistan on joint venture (JV) basis. CPEC’s two main components are developing a new trade and transport route from Kashgar in China to the Gwadar Port in Balochistan and special economic zones along the route, including power and motorway projects. The first-phase projects will receive $45.69 billion in concessionary and commercial loans, for which financial facilitation to PRC companies is being arranged by SRF. These include $33.79 billion for energy projects, $5.9 billion for roads, $3.69 billion for railway network, $1.6 billion for Lahore Mass Transit, $66 million for Gwadar Port and a fibre optic project worth $4 million.Some of these projects have been fast-tracked and many are likely to be commissioned by 2019.

 

Apart from Karot hydropower project, they include the upgrading of the 1,681 km Peshawar-Lahore-Karachi railway line ($3.70 billion), Thar coal-fired power plants of 1,980 MW ($2.80 billion), development of two Thar coal mining blocks ($2.20 billion), the Gwadar-Nawabshah natural gas pipeline ($2 billion); imported coal-based power plants at Port Qasim for 1,320 MW ($2 billion), a 900 MW solar park in Bahawalpur ($1.30 billion), the Havelian-Islamabad link of the Karakoram Highway ($930 million), a 260 MW wind farm at Jhimpir ($260 million); and the Gwadar International Airport ($230 million). How is PRC financing such gargantuan expenditure? Although it has had its fair share of bad bank loans, distressed stock market and a sagging renminbi, yet $1.22 trillion in US Treasury Bonds (as of July 2016) is no mean amount of a total of $4 trillion investments in the US alone in mid-2015. As of 30 September 2016, the average interest rate on US Treasury Bonds was 4.429 per cent, down from 4.673 per cent a year earlier. Against this, a conservative annual return (interest and return on investment) @ 30-35 per cent per annum makes a positive difference of about $300-350 million/annum to PRC entities for every billion dollar invested over US Treasury Bonds. Included in this is a conservative 10 per cent mark-up in prices of capital equipment (that is normal globally), debt servicing costs (excluding interest) of about 7 per cent and return of investment of about 20-25 per cent, all per annum. For $ 67 billion CPEC funds (Pakistan and Bangladesh), PRC could potentially earn about $20-23 billion per annum with average payback period @ a remarkable 3-5 years.

 

The Bank of China reported a low prime lending rate of 4.35 per cent as of September 2016 that has not changed in the last year, so the cost of domestic and repatriated capital is low.Just how expensive will SRF finance be for Pakistan? A framework agreement for energy projects under CPEC was recently signed between Sinosure and the water and power ministry of Pakistan to provide sovereign guarantees. Sinosure is charging a fee of 7 per cent for debt servicing added to the project’s capital cost. Such an add-on of $63.90 million for debt servicing and financing fees and charges of another $21 million would raise the capital cost of the Port Qasim 660MW power project from $767.90 million to $956.10 million. Interestingly, interest during construction will be at the rate of 33.33 per cent each for the first and second years, 13.33 per cent for the third and 20 per cent for the fourth year. In addition, 27.20 per cent return on equity is guaranteed, post-commissioning. Power is therefore least likely to be affordable, so the substantial upward tariff revision may meet with popular dissent as for motorway tolls.Pakistan’s Finance Ministry has already exempted a few motorway projects from customs duties and taxes. Pakistan’s Federal Board of Revenue (FBR) has, so far, granted exemption on withholding and sales tax to two Chinese firms on import of motor vehicles for CPEC motorway projects. States too are pitching in. The Punjab government has leased 4,500 acres of land to PRC companies for the second phase of the Quaid-e-Azam Solar Park of 900 MW, probably gratis.

 

Similarly, the Gwadar Port Authority (GPA) has assigned or will be shortly assigning 923 hectares (2300 acres) of tax and cost-exempt land to China Overseas Port Holding Company (COPHC) on a 43-year lease. None of these costs will be borne by the PRC and will add to the cost of CPEC’s implementation. This is in addition to the $248 million PRC has already spent on establishing Gwadar Port in 2007, also as loans.SRF has already signed an MoU with China’s Three Gorges Corporation and Pakistan’s Private Power and Infrastructure Board (PPIB) to develop a number of private hydropower projects like the 720 MW Karot hydropower project. Likewise for Pakistani companies, Sindh Engro Coal Mining Co, which is a joint venture of EngroPowergen Ltd and the Sindh government, is the leaseholder of Thar Block-II coalfields, while its affiliate/subsidiary Thar Power Company will construct a series of mine-mouth power plants with SRF assistance. One such plant will receive $1 billion from the Industrial and Commercial Bank of China (ICBC) with 75 per cent financing of the $2.6 billion project, 25 per cent of which will be equity held by the financing ICBC.Which agencies will undertake joint implementation for the PRC? Three Gorges Corporation for hydropower projects, Shanghai Electric (Group) Corporation in partnership with Sino-Sindh Resources that is a subsidiary of Global Mining (China) Ltd, Lucky Electric Power Company, Zonergy Co Ltd, China Construction Company, China State Construction Engineering Company, China Civil Engineering Construction Corporation, Syno Hydro Company, etc., all PRC-owned companies, private and public, are the principal contractors.

 

Sub-contractors would presumably be Pakistani which is where local corruption will hugely creep in, as in India, and appreciably reduce the value of the loans. Chinese supervisors would also have to be protected against local goons for which the Pakistani army is reported to be raising a division to protect CPEC assets, expenses of which will be on Pakistan’s exchequer. How does PRC benefit from CPEC-like investments? At a very modest 0.25 per cent annual accretion to PRC’s GDP in 2016 of $10.87 trillion owing to CPEC and similar non-West transnational investment may potentially add at least another $300-400 billion per annum to PRC’s GDP by 2020. In addition, equipment and building supplies manufacturers, now in distress, would not only generate new jobs but also witness appreciable upsurge in their share values and consequently earnings per share for investors, many of them in distress now. Is that why PRC’s SRF is being called the new East India Company?What is the flip side of CPEC-like PRC investments? For one, high rates of return on investment are proportionate to the gravest risks involved that all recipients would certainly face in varying measure.

The track record of mega corruption in sub-contracting, poor implementation and operation plagues nearly all of PRC’s client countries. As delays mount, so will commitment charges on loans and accumulated rate of return. Similarly, political compulsions in accepting high-tariff tolls for every km of new motorways, willingness to substantially raise power, water and telecom tariffs in a historical subsidy regime, land acquisition hurdles, relief and rehabilitation of the displaced, high maintenance costs (owing to less than average material used and terrain), etc., could add manifold to the Chinese debt of a recipient country.

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New urban agenda

 

 

Source: By Tathagata Chatterji: The Financial Express

 

 

Representatives from 193 countries met between 17 and 20 October this year for the Habitat III Conference at Ecuador's charming capital, Quito, to sign the Quito Declaration, adopting the United Nations' New Urban Agenda. Although legally not binding, the agenda provides a roadmap on how to turn our urban future in a more positive direction to create more jobs, provide cheaper housing, cleaner energy, better transportation and greater social equity, indeed issues that are of crucial importance to a fast urbanising country like India.

 

The previous Habitat Conference was held in Istanbul in 1996. Between then and now, the number of people living in urban areas worldwide has increased from 45 per cent to 55 per cent. It is projected that by 2030, two-thirds of the global population and 40 per cent of India's population will be urban. Cities today generate 80 per cent of global GDP, but also 70 per cent of greenhouse gas emissions. Every sixth urban resident lives in a slum. Land conflicts are erupting with the haphazard spread of the urban footprint over its rural periphery and urban social divides are widening.

 

The New Urban Agenda attempts to address the opportunities and challenges associated with the global urban turn, explained Joan Clos, Executive Director of UN-Habitat. It also takes into account recommendations of the Paris Declaration on Climate Change, World Urban Forum 2014, and of course Sustainable Development Goals (SDGs) and targets, including SDG 11 of making cities and human settlements inclusive, safe, resilient and sustainable.

 

However, human rights activists expressed strong disappointment at the dilution of the contentious 'right to the city' clause in the draft agenda finalised earlier in New York, in the run-up to the Quito conference. 'Right to the city' recognises access to urban space and civic services (like water and sanitation) as a basic human right for all, including people living in slums and squatter settlements and engaged in informal economy like street vending. The controversial clause was backed by Brazil and various Latin American countries. It was, however, strongly opposed by India, which has a colossal slum population of 65 million Rs larger than the population of Britain.

 

The new agenda acknowledges urbanisation as a transformative force. It calls to treat urbanisation as an engine of sustained and inclusive economic growth, social and cultural development and environmental protection. This is a belated acceptance of the ground reality (since 2008, more than 50 per cent of the global population has become urban). Nevertheless, it is important. Many governments in Asia and Africa, especially those of countries which are still predominantly rural, see urbanisation in a negative way. Several others see urbanisation as a routine process, adopt a hands-off approach and seldom prepare for the outcomes.

 

This belated recognition about the economic, cultural and social roles of cities could be a potential game-changer and impact the way urban and rural development programmes are designed and funded.   Also implicit in this acknowledgment about the economic, social and cultural role of cities is the necessity to treat urban space as an integrative platform. Various sectoral policies related to industrial location, employment generation, transportation, energy usage, housing, disaster mitigation, gender relations, safety and health care come together in the city.

 

Therefore, by "readdressing the way cities and human settlements are planned, designed, financed, developed, governed and managed", the New Urban Agenda attempts to "end poverty and hunger in all its forms and dimensions, reduce inequalities, promote sustained, inclusive and sustainable economic growth, achieve gender equality and the empowerment of all women and girls … improve human health and well-being, as well as foster resilience and protect the environment". The new agenda is based on hard evidence-based research from across the globe over the past 20 years. Its most important takeaway point is the importance of urban (or spatial) planning as a process to manage urbanisation and its various implications in a more systematic and orderly way.

 

The Ministry of Housing and Urban Poverty Alleviation recently launched the India Habitat III National Report, 2016, which declared the government's intention to steer India's urban transformation in line with the objectives of the New Urban Agenda. While that intention sounds great, the question is whether we would be able to rise to the challenge. The devil is in the detail. According to the Census projections, between 2015 and 2030, India's urban population is going to jump from 428 million to 606 million. That means over the next 15 years, India needs to build 22 more cities of the size of Bangalore to accommodate the new urban residents.  The question before us is whether India wants to urbanise in a planned or unplanned way. Does it want rapid urbanisation to turn its cities into growth engines and lift millions out of poverty as was done in China? Or does India want the drift to continue and let the teeming millions turn its habitats into ghettos of deprivation?

 

The number of urban planners in India is microscopic. Britain has 38 planners per 100,000 people. In India, the figure is just 0.23. There are several urban local bodies without a single qualified urban planner. There are hardly twenty planning schools. Barring the top two or three, the rest are highly understaffed and the syllabus archaic. The institutional structures of planning are weak and are dominated by an engineering bureaucracy, whose world view frequently hovers within the ambit of 'tender-contract- project cycle', with hardly any scope for long-term strategic thinking.

 

Until recently, urban issues never figured prominently in India's public policy discourse, as the Gandhian maxim Rs 'India lives in villages' Rs held sway. The scenario started to change slowly with the launching of the JNNURM programme in 2005, and then in 2015, the Modi government launched a plethora of urban-centric schemes, including the ambitious Smart Cities Mission. However, if India wants to make the urbanisation process truly sustainable, it needs to get rid of its preoccupation with short-term projects with fancy acronyms and focus more on the fundamentals of urban management, through an overarching policy regime that would take into account its enormous regional diversity in settlement patterns.

 

India needs to strengthen its urban governance and management systems by overcoming chaos and confusion due to multiplicity of authorities with overlapping jurisdictions, by building city-specific data-sharing platforms, integrating various government departments and private utility providers as Brazil has started developing.

 

India also needs to substantially scale-up the ambit of planning, beyond the existing urban areas and over a larger geography, as China started doing long back and South Africa started recently. This would help it to develop greater harmony between economic investments and their spatial outcomes, strengthen backward-forward linkages between cities and their rural hinterlands, and protect fertile agricultural belts and ecologically vulnerable regions.

Above all, to implement the New Urban Agenda, India needs to develop a high degree of operational synergy between the national, state and municipal governments. Are we ready for that?

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